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An assumption made in traditional cost accounting books is that variable costs move proportionately with revenues. Recent studies in management accounting literature suggest that the magnitude of the change in the costs does not only depend on the magnitude of the change in the cost driver, but also of the direction of this change (ascending or descending). To define this situation, numerous authors refer to sticky costs.

The motivation of this work is to test if the concept of sticky costs is observed in banks as a way to improve the generalization of Anderson, Banker and Janakiraman (2003) idea because cost structures and scale economies are likely to be similar across firms in the same industry (Balakrishnan and Gruca, 2008; Balakrishnan et al., 2004).

The analysis confirms the validity of existing literature on sticky costs even when controlling for cost structure. The results show that sticky costs are observed also in banks of Argentina, Brazil and Canada for the years 2004-2009. If the activity of the sector expands, the costs grow but less than proportional; the relation between an increase of 1% total income and increase of costs is positive as the theory predicts (0.60% for Argentina, 0.82% for Brazil and 0.94% for Canada). It is argued that total costs in this industry follow a sticky behavior because the magnitude of the increase associated with an increase in the volume of activity or revenues (0.60%, 0.82% and 0.94%) is larger than the magnitude of the fall associated with a decrease of the volume (0.38%, 0.48% and 0.55%).

A second set of results suggests that cost structure and economic climate are valid explanations for cost behavior. The cost structure of banks in each country affects the level of cost responses to increases and decreases in demand. Banks with higher proportions of fixed costs, such as Brazil, will show a lower reduction of costs when demand declines. Banks with higher levels of asset intensity, such as Canada, will show a higher reduction of costs when demand declines. Finally, banks that operate in an uncertain economic environment, such as Argentina, will show the lowest increase of costs when demand increases and consequently will also show the lowest reduction of costs when demand declines.